Economic Growth, Regulatory Relief, and Consumer Protection Act

Floor Speech

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Ms. WARREN. Thank you, Madam President.

Ten years ago today, at breakfast tables all around the country, Americans read a shocking headline: ``Fed assumes the role of lender of last resort.'' The biggest investment banks on Wall Street were getting their first taxpayer bailout, but some of the banks were so addicted to poisonous scam mortgages that even that bailout wasn't enough. Within a week, Bear Stearns--an 85-year-old fixture on Wall Street--would fall, and the financial crisis would begin.

Within a year, American workers' retirement accounts had lost $2.7 trillion, almost one-third of their value. No one bailed them out. Within 2 years, 8.8 million Americans had lost their jobs. No one bailed them out. Within 3 years, more than 4 million homes had been lost to foreclosures, and millions more were in danger. No one bailed the homeowners out. Now, to mark the 10th anniversary of that devastating crisis, the Senate is on the verge of rolling back the rules on the big banks again.

Last week I talked about how this bill guts important consumer protections, how it weakens the oversight of banks with up to a quarter of a trillion dollars in assets, and how it could set the stage for another financial crisis, just like past bipartisan bills to roll back the financial rules. But the bill will also roll back the rules on the very biggest banks in the country, the true Wall Street banks, including JPMorgan Chase, Citigroup, and the rest--banks that taxpayers spent $180 billion bailing out in 2008. And no matter what the supporters of this bill say, there are three glaring parts of this bill that without question help the very biggest Wall Street banks.

First, this bill opens the door to easing up on big banks' stress tests. Right now, about 40 of the biggest banks go through stress tests every year, simulating a financial crisis and making sure that if it happened, they could survive. This bill says that 25 of them can just skip the hard test from now on, and the remaining 15 or so--well, they don't necessarily have to do those tests every single year. For the banks that are still going to be doing stress tests, they can now be done, under this bill, ``periodically.'' Who decides what ``periodically'' means--the former investment bankers Donald Trump has nominated to lead the Fed and to head up the Fed's supervisory work? Does that make you feel safe?

Second, the bill gives the biggest banks a new legal tool to fight for weaker rules. Right now, the law says that the Fed ``may'' tailor capital and other rules for the biggest banks. This bill says the Fed ``shall'' tailor the rules for the banks with more than $250 billion in assets--the very biggest banks in this country. That one word--the switch from ``may'' to ``shall''--may not seem like much, but it means everything to the high-priced lawyers who represent these banks.

Here is what Jeffrey Gordon, a professor at Columbia Law School, had to say about that one-word change:

This apparently minor change is likely to produce significant degradation of financial stability, especially over the long run. The change would expose the Fed to litigation challenges to its enhanced standards, in particular whether they are already adequately tailored. . . . The statute thus empowers the largest firms which pose the biggest risks to bargain with the Fed for laxer standards with the threat of a well-resourced litigation challenge in the background. Over time this bargaining for laxity will produce a race-to-the-bottom dynamic that will dramatically increase the chance of another financial crisis.

Professor Gordon of Columbia Law School says that will dramatically increase the chance of another financial crisis.

If you think the one-word change from ``may'' to ``shall'' won't change much, consider this: Opponents to the bill have been pointing out this problem loudly and publicly, but the bill's sponsors won't change it. They won't change that one word. Why? Because the giant banks want the change.

The third bank giveaway in this bill undercuts capital requirements for the biggest banks. The best way to stop another taxpayer bailout of the big banks is to make sure they have enough capital on hand to withstand a crisis. That is why Congress and the regulators established tougher capital requirements for the big banks after the last financial crisis. This bill reverses direction, opening the door to big banks like JPMorgan and Citigroup facing much lower capital requirements than they do now. In fact, the independent Congressional Budget Office says there is a 50-percent chance that JPMorgan and Citigroup can take advantage of a provision in the bill to reduce their capital requirements.

The Wall Street Journal editorial board--no fan of tough regulation-- wrote that the change proposed in the banking bill is dangerous and ``will make the financial system more vulnerable in a panic.'' The Bloomberg editorial board says the bill ``chip[s] away at the bedrock of financial resilience--the equity capital that allows banks to absorb losses and keep on lending in bad times.'' And the consequences could be huge. According to the FDIC, this provision could lower capital requirements for JPMorgan by $21.4 billion and for Citigroup by $8.6 billion.

At the end of last week, the supporters of the bill introduced a new amendment that they claimed would address the problems in this bill, but that amendment did nothing to address these three glaring big-bank giveaways: The stress test provision is unchanged, the litigation provision is unchanged, and the capital requirements provision is unchanged. Victories for the big banks have been preserved 100 percent.

But it is not just the big-bank giveaways that remain unaddressed in this new amendment. Over the last week, we have heard a lot of criticism about this bill from experts and from civil rights groups and from consumer advocates and from former regulators, and, most importantly, from our constituents back home. They don't like it. This banking bill undermines civil rights laws. It weakens consumers protections on mortgages and mobile home purchases. It rolls back rules on 25 of the 40 largest banks in the country. It does almost nothing to protect consumers. Let me be perfectly clear about this. The new amendment does not address a single one of these legitimate criticisms. It is a bunch of fig leaves designed to let supporters of the bill pretend that they have addressed those criticisms without actually addressing them. In some cases, these little fig leaves actually make things worse.

Let's start with the fake fixes--first, mortgage discrimination. Mortgage discrimination is real in America. Some banks charge African Americans more for loans than they charge Whites with similar credit. Some deny loans to Latinos or to single women. How do we know that? Because banks have to disclose information about the loans they provide under something called the Home Mortgage Disclosure Act, or HMDA. Using HMDA data, a new report shows that in 61 different cities around the country, minority borrowers were more likely to be denied a mortgage than White borrowers with the same income. But this bill--the bill that is pending on the floor of the Senate--now exempts 85 percent of banks from reporting any HMDA data, making it much harder to discover and stamp out discrimination.

Senator Cortez Masto had a great idea for fixing this: Take the HMDA provision out of the pending bill. Leave HMDA alone. If the authors of this bill really wanted to fix this problem, they would support her amendment and insist that without that amendment, they would withdraw their support for the bill. But now the bill's supporters have a fig leaf. They say that of the 85 percent of banks that no longer will have to report information about discrimination, if one of those banks flunks two consecutive examinations under the Community Reinvestment Act, those banks will have to start reporting discrimination data. If that looks like a tiny little fig leaf, consider this: Banks get tested at most every 3 years, which means it would take 6 years of discrimination to flunk twice. This fig leaf is so small, it is basically invisible.

Now, for some of these so-called consumer protection fig leaves--the problems are real; it is just the solutions that are fake. For example, there is a provision to deal with private student loans from banks. It says that if a student loan borrower dies, then the bank can't go after the cosigner of the loan for the full balance. That sounds really good--at least until you read the fine print. It turns out that spouses don't count. So the bank will still be free to hound widows and widowers for the balances of their deceased spouses. And the loan isn't actually forgiven. That means the bank can still go after the dead borrower's estate for the loan, maybe take half of the house or take whatever is in the checking account or savings account. It is a nightmare for a grieving family--and it is also perfectly OK under this fig leaf amendment.

In some places, it isn't even a fig leaf that pretends to address problems with the bill; it is just new provisions to create new problems--like a section that blows a hole in regulators' ability to require banks to hold capital for commercial real estate. Does anyone remember that risky commercial real estate investments were a factor in Bear Stearns' failure 10 years ago this week? Does anyone remember that 6 months later, commercial real estate losses would help blow up Lehman Brothers? I guess not--at least not right here in Congress, because 10 years later--right now, this week--Congress wants to let banks take one more commercial real estate fix with less oversight.

Banks of all sizes are making record profits. Only in Washington would people think it is time to scrap the protections that have kept us safe for a decade, all so that these same profitable banks can make even more money. It is the same mindset that set the stage for the savings and loan crisis in the late 1980s and the financial crisis of 2008.

America's working families will pay the price if we make the same mistakes again. It isn't too late. We should stop this bill from becoming law.

Thank you, Madam President.

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